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Market Segmentation, Targeting, and Positioning 1 Key Terms • • • • • • • Market segmentation Competitive advantage Demographic segmentation Market homogeneity Market positioning Market targeting Micromarketing 2 “The mythological, homogeneous America is gone. We are a mosaic of minorities.” -Joel Weiner 3 Chapter Objectives • Explain market segmentation and identify several possible bases for segmenting markets • List and distinguish among the requirements for effective segmentation 4 Chapter Objectives • Outline the process of evaluating market segments • Illustrate the concept of positioning for competitive advantage • Discuss choosing and implementing a positioning strategy 5 Markets • A market is all actual and potential buyers of a product or service 6 Stages of Marketing • Mass marketing • Product-variety marketing • Target marketing • Micromarketing • Customized marketing 7 Differentiation • Distinguishing your product or service from the competition in ways that are both identifiable and meaningful for the customer • The customer should perceive a greater value 8 Differentiation • Differentiation is effective when: – – – It cannot be easily copied It appeals to a particular need or want It creates an image or impression that goes beyond the specific difference itself 9 Differentiation • Differentiation as a marketing tool – – – Helps create awareness and trial by the customer Sometimes product differentiation is the only thing a firm can do It is much easier to do in the foodservice environment, even within hotels 10 Differentiation • Differentiation - of anything – – – – • Can be product, message or brand specific Difficult to achieve in hospitality because of the variety of services offered Separates product classes and products within the same class Provides an opportunity to strengthen competitive strategy Is the basis for positioning strategy 11 12 Market Segmentation • Market segmentation: – Is a complimentary strategy to differentiation – Is dividing a market into meaningful groups who have similar wants and needs (market segments) – Starts with the customer 13 Market Segmentation • Which comes first: differentiation or segmentation? – – – – – – Both happen in combination at different times Both are part of the marketing concept First know how people differ Then segment them accordingly Develop products that meet their specific wants and needs Creating these two strategies are major reason to study consumer behavior 14 Market Segmentation • The process: – – – – – Step 1: Needs and wants of the marketplace Step 2: Projecting wants and needs into potential markets Step 3: Matching the market and capabilities Step 4: Segmenting the market Step 5: Selecting target markets from identified segments 15 Segmenting Variables • Various ways in which a market can be divided, or segmented, into meaningful groups of buyers – – – – – – Geographic Demographic Psychographic Usage Benefit Price 16 Geographic Segmentation • Dividing the market into different geographic units – – – – – – Nations States Regions Counties Cities Neighbourhoods 17 Geographic Segmentation • Most widely used in restaurant and hotel industry These segments then become easier to reach • – – – • Metropolitan statistical areas (MSAs) – • Direct mail Media Data and information on demographics Defining large metropolitan areas in terms of supposed economic boundaries Designated market area (DMA) 18 • Geographic segmentation calls for dividing the market into different geographic units such as nations, states, regions, counties, cities, or neighborhoods. • For example, General Foods’ Maxwell House ground coffee is sold nationally but is flavored regionally. • For the lodging companies, Holiday Inn began as a regional motel company out of Memphis, Tennessee. • Motel 8 began in Aberdeen, South Dakota, with original appeal to the Midwestern and western market, but expanded well beyond regional boundaries. • Hyatt Hotels initiated a program to offer regional dishes on its menus. The Four Seasons Hotel in Washington, D.C., became concerned about offering local cuisine. 19 Demographic Segmentation (xxx) • • • • – – – – – Widely used because easy to measure and classify Does not necessarily distinguish wants and needs Demographic lines are now blurred (flu) Useful demographics Age Family life cycle stage Gender Income Occupation 20 Age and life cycle stage: consumer needs and wants change with age. Some companies offer different products or marketing strategies to penetrate various age and life cycle segments. For example, McDonald’s offers happy meals that include toys, aimed at young children. American Express focuses much of its marketing attention on the “mature” market. Nevertheless, age and life cycle variables can be misleading. For instance, some customers were not the physiologically young but the psychologically young. Southwest Airlines realized that many senior citizens are psychologically young. Their advertisements for senior fares show active older people enjoying themselves. 21 –Gender: Currently, women accounted for 40 % of all business travelers. Hotel corporations are now taking women into consideration in designing their hotel rooms. Most effective when combined with lifestyle and demographic information. –Income: Income alone does not always predict which customers will buy a given product or service. It should combine with other variables. For instance, the St. Moritz on-the-Park Hotel in New York City has combined income and geographical segmentation variables to set its prices. Middle-income consumer is by far the largest segment but is difficult to attract and retain. 22 Psychographic Segmentation • • • • • Dividing buyers into different groups based on social class, lifestyle, and personality characteristics Based on activities, interests, and opinions (AIO), self-concepts and lifestyle behaviors Lifestyle patterns combines demographics with the way people live, think and behave in their everyday lives and correlate them into homogeneous categories A rich area for marketing effectiveness for the hospitality industry PRIZM and VALS 23 • Social class: social class has a strong effect on preferences for leisure activities. For example, afternoon tea at the Ritz-Carlton is aimed at the upper-middle and upper classes. A neighborhood pub near a factory targets the working class. • Lifestyle: marketers are increasingly segmenting their markets by consumer lifestyles. For example, nightclubs are designed with certain clientele in mind: young singles wanting to meet the opposite sex, singles wanting to meet the same sex. • Personality: marketers also use personality variables to segment markets. For example,, Frontier Airlines is building a personality around animals by putting colorful graphics on their planes. 24 Behavioral Segmentation • Buyers are divided into groups based on their knowledge, attitude, and use or response to a product • The best starting point for building market segments • Types – Special occasion segmentation – Benefits sought – User status – Usage rate – Loyalty status – Buyer readiness stage 25 • Special Occasions: Buyers can be grouped according to occasions when they get the idea, make the purchase, or use a product. – For example, air travel is triggered by occasions related to business, vacation, or family. Mother’s Day has been promoted as a time to take your mother or wife out to eat. Some hotels in the Pocono Mountains of Pennsylvania, specialize in the honeymoon market. Doubletree’s “Room at the Inn” program offers free short-term lodging for travelers needing emergency lodging between Thanksgiving and Christmas. 26 • Benefits sought: Buyers can also be grouped according to the product benefits they seek. • For example, a study indicated that the benefits sought by patrons of different types of restaurants are different. • Knowing the attributes or benefits sought by customers is useful in two ways. First, restaurant marketers understand what to provide and promote to attract a specific segment. Second, identification of customer types is possible. This type of information reduces waste in advertising and increases effectiveness. The French Trianon Palace Hotel found a specific niche for travelers who want to travel with their best friend – their dog – by offering special services for their pets. 27 • User status: Many markets can be segmented into nonusers, former users, potential users, first-time users, and regular users of a product. Potential users and regular users often require different marketing appeals. • Usage rate: Markets can also be segmented into light-, medium-, and heavy-user groups. • Heavy users are often a small percentage of the market but account for a high percentage of total buying. For example, a study found heavy users of fast food restaurants account for only 20% of the customers but 60% of fast food transactions. Heavy users of airline travel accounts for only 4.1% of the customers but 70.4% of total airline trips. Heavy users of pleasure trip users of hotels and motels account for only 7.9% of the customers but 59.4% of room nights. • One of the most controversial programs ever employed by the hospitality and travel industries to ensure heavy patronage by key customers is the frequent flyer or frequent guest program. Clearly, marketers are eager to identify heavy users and build a marketing mix to attract them. 28 • Loyalty status: Markets can also be segmented into four groups: hard-core loyalty, soft-core loyalty, switchers, and no loyalty. In the hospitality and travel industries, marketers attempt to build brand loyalty through relationship marketing. Loyal customers are generally more price insensitive. • Buyer readiness stage: At any given time, people are in different stages of readiness to buy a product. Some are unaware of the product; some are aware; some are informed; some want the product; and some intend to buy. The relative number in each stage makes a big difference in designing a marketing program. 29 Usage Segmentation • Umbrella term that covers a wide range of categories – – – – – – – – – Purpose Frequency Monetary value Recency (novelty) Timing Nature of the purchase Where they go Purchase occasion Heavy, medium or light 31 Benefit Segmentation • May be the most basic and most predictable of all segments Benefits are very related to need satisfaction Benefits • • – – – – – – – – Comfort Prestige Low price Recognition Attention Romance Quiet Safety 32 Price Segmentation • • • A form of benefit segmentation, only more visible and more tangible Price segments within a product class Price segments between product classes 33 Segmentation Strategies • • • • • There will be many segments, some with overlap, and different strategies for each segment The test of a segment is their different behavior Segments change over time Market segmentation has become increasingly critical with competition Segmentation will remain a key competitive strategy within the product class 34 35 36 Target Marketing • Selecting specific market segments to target and designing the product or service to meet their specific wants or needs • More refined segmenting rules apply • Strategies: – Undifferentiated targeting market strategy – Strong targeting strategy – Differentiated multi-target marketing 37 Mass Customization • The concept that modern technology is bringing us closer to target markets of one • Make one product and personalize the product to their specifications • Largely due to databases that track customer behavior 38 Requirements for Effective Segmentation • Measurability • Accessibility • Substantiality • Actionability 39 Requirements for Effective Segmentation Measurable Accessible Substantial Actionable • Size, purchasing power, profiles of segments can be measured. • Segments can be effectively reached and served. • Segments are large or profitable enough to serve. • Effective programs can be designed to attract and serve the segments. 40 Market Targeting • Evaluating Market Segments • Selecting Market Segments • Choosing a Market-Coverage Strategy 41 • Market Targeting – Marketing segmentation reveals the firm’s market-segment opportunities. The firm now has to evaluate the various segments and decide how many and which ones to target. We now look at how companies evaluate and select target markets. • A. Evaluating Market Segments: When evaluating different market segments, a firm must look at three factors: segment size and growth, segment structural attractiveness, and company objectives and resources. 42 Evaluating Market Segments • Segment Size and Growth • Segment Structural Attractiveness • Company Objectives and Resources 43 Segment size and growth: • The company must first collect and analyze data on current segment sales, growth rates, and expected profitability for various segments. • The “right size and grow” this a relative matter. • The largest, fastest-growing segments are not always the most attractive ones for every company. • Smaller companies may find they lack the skills and resources needed to serve the larger segments, or that these segments are too competitive. 44 Segment structural attractiveness: The company must examine several major structural factors that affect long-run segment attractiveness. The following three factors make a segment less attractive: (1) the segment already contains many strong and aggressive competitors (2) the buyers in the segment possess strong bargaining power relative to sellers (3) the segment contains powerful suppliers. 45 Company objectives and resources: • The company must consider its own objectives and resources in relation to that segment. • Some attractive segments could be dismissed quickly because they do not mesh with the company’s long-run objectives. • For example, Disney has avoided getting involved in the gaming business segment. 46 Selecting Market Segments After evaluating different segments, the company must now decide which and how many segments to serve. This is the problem of target-market selection, a company can adopt one of three market-coverage strategies: • Undifferentiated Marketing (fast food) • Bifurcated Marketing (dual / two segments) • Differentiated Marketing (Adressing different segments) • Concentrated Marketing (few market segments – city hotels) 47 Undifferentiated Marketing Strategy: An undifferentiated marketing strategy ignores market segmentation differences and goes after the entire market with one market offer. Undifferentiated marketing provides cost economies. The narrow product line keeps down production, inventory, and transportation costs. Most modern marketers have strong doubts about this strategy in today’s competitive environment. In recognition of this problem, many firms target smaller segments or niches where product differentiation is appreciated. For example, microbrewery serves a limited market. Several new niche market airlines have emerged, such as Casino Express, which flies between Denver, Colorado, and Elko, Nevada, and Spirit Airlines, based in Atlantic City. 48 Bifurcated Marketing: • In many undeveloped nations, a group of highend hotels exists for international visitors and guests with high incomes. Another distinct group of low-end hotels exists for locals and adventurous tourists. 49 Differentiated Marketing Strategy: The firm targets several market segments and designs separate offers for each. – For example, Accor Hotels, a French company, operates under 12 trade names and manages several brands and types of hotels. Included in its brands are international luxury hotels (Sofitel), three-star hotels (Novotel), two-star hotels (Ibis), limited-service hotels (Formula One and Motel 6), and extended-stay hotels aimed at the elderly (Hotelia). – It typically produces more total sales than undifferentiated marketing. For example, Accor gets a higher hotel room market share with three different brands in one city than if it only had one brand in that city. However, its costs are higher to produce the research, forecasting, analysis, and advertising for each brand. 50 Concentrated Marketing Strategy(xxx): • The firm pursues a large share of one or more small markets. • This strategy is especially appealing to companies with limited resources. For example, Four Seasons Hotels and Rosewood Hotels concentrate on the high-priced hotel room market. • Furthermore, the firm also enjoys many operative economies because of specialization in production, distribution, and promotion. • If the segment is well chosen, the firm can earn a high rate of return on investment. 51 Choosing a Market – Coverage Strategy Factors affecting market coverage strategy • Company resources • Degree of product homogeneity • Market homogeneity • Competitors’ strategies 52 Factors Affecting Market Coverage Strategy Companies need to consider several factors in choosing a market-coverage strategy. 1. The Company's Resources. When the company's resources are limited, concentrated marketing makes the most sense. 2. The Degree of Product Homogeneity. Undifferentiated marketing is more suited for homogeneous products. Products that can vary in design, such as restaurants and hotels, are more suited to differentiation or concentration. 53 Factors Affecting Market Coverage Strategy 3. Market Homogeneity. If buyers have the same tastes, buy a product in the same amounts, and react the same way to marketing efforts, undifferentiated marketing is appropriate. 4. Competitors' Strategies. When competitors use segmentation, undifferentiated marketing can be suicidal. Conversely, when competitors use undifferentiated marketing, a firm can gain an advantage by using differentiated or concentrated marketing. 54 Market Positioning • A product's position is considered as the way the product is defined by consumers on important attributes – the place the product occupies in consumers' minds relative to competing products. • A hotel brand’s position can be viewed from two perspectives – that of the brand’s management and that of the guests. 55 Market Positioning • The brand’s management must have a firm’s concept of the hotel’s intended position, and its promotional efforts must articulate not only what the brand offers, but also how its offerings are different from those of other brands. • In the final analysis, however, a brand’s position is determined by its customers.” 56 Positioning Strategies. The key point for marketers to remember is that the firm must create value for the segments that are chosen. In other words, the differentiating features of a company, product, or service, must be of some importance to the consumer markets. 57 Positioning Strategies. • Marketers can position their products based on specific product attributes. • For example, seeing an interest in better seating, AmericaWest offers 50 – 70 % price reductions for first class seats. • Products can also be positioned on the needs they fill or the benefits they offer. • For example, Bennigans advertises itself as a fun place, while many bars promote their image as a meeting place for members of the opposite sex (or same sex). 58 Positioning Strategies – Marketers can also position for certain classes of users, such as a hotel advertising itself as a women’s hotel. – A product can be positioned against an existing competitor. – In the “Burger Wars, Wendy’s ran its “Where’s the beef” campaign against McDonald’s and Burger King, – Products can be positioned against another product class. – For example, cruise ships have positioned themselves against other vacation alternatives. 59 Strategic Positioning Process The positioning task consists of three steps: 1. Identifying a set of possible competitive advantages upon which to build a position, 2. Selecting the right competitive advantages through product differentiation, and 3. Effectively communicating and delivering the chosen position to a carefully selected target market. 60 Strategic Positioning Process: • A company can differentiate itself from competitors by bundling competitive advantages. • On the other hand, unbundling of products has also worked as a positioning tactic. • Moreover, not every company faces an abundance of opportunities for gaining a competitive advantage. • Some companies can identify only minor advantages. 61 Product Differentiation • A company can differentiate its product or offer products similar to competitors. • Today, most products try to differentiate themselves from their competitors. • A company can differentiate along the lines of physical attributes, service, personnel, location, or image. 62 1 Physical Attributes Differentiation • The physical environment offers something that competitors cannot match. • For example, Sheraton Place in San Francisco is an example of renovated classic hotels. • Planet Hollywood differentiates itself by the memorabilia from the motion picture industry. • Hard Rock Café differentiates itself by the music memorabilia. 63 2 Service Differentiation • By providing services that will benefit its target market, a company can achieve differentiation. • For example, Sheraton provides an inroom check-in service. • Red Lobster allows its customers to call from home and put their name on the waiting list, reducing the waiting time. 64 3 Personnel Differentiation • Companies can gain a strong competitive advantage through hiring and training better people than their competitors do. • For example, Singapore Airlines enjoys an excellent reputation largely because of the grace of its flight attendants. • As far as Southwest Airlines, it’s difficult for competitors to create a spirit similar to the spirit of Southwest’s employees. 65 4 Location • Hospitality and travel firms should look for benefits created by their location and use these benefits to differentiate themselves from their market. • For example, hotels facing Central Park in New York City have a competitive advantage over those hotels a block away with no view of the park. • Motels that are located right off a freeway exit can have double-digit advantages in percentage of occupancy over hotels a block away. • Restaurants along the River Walk in San Antonio, Texas have a competitive advantage over restaurants without a riverfront location. 66 Image Differentiation • A company or brand image should convey a singular or distinctive message that communicates the product’s major benefits and positioning. • For example, Chili’s has developed an image as a casual and fun neighborhood restaurant. • This message is conveyed by their advertising, menu, the physical atmosphere, and the employees. • The image must be supported by everything that the company says and does. 67 Selecting the Right Competitive Advantages • Suppose that a company is fortunate enough to discover several potential competitive advantages. • It now must choose the ones on which it will build its positioning strategy. • It must decide how many differences to promote and which ones. 68 Selecting the Right Competitive Advantages: • How Many Differences to Promote: – Many marketers think that companies should aggressively promote only one benefit to the target market. – The major ones are best quality, best service, lowest price, best value, and best location. – For example, Motel 6 consistently promotes itself as the lowest-priced national chain, and Ritz-Carlton promotes itself as a value leader. 69 Selecting the Right Competitive Advantages: • Other marketers think that companies should position themselves on more than one differentiating factor. • For example, a restaurant may claim that it has the best steaks and service. • A hotel may claim that it offers the best value and location. • However, as companies increase the number of claims for their brands, they risk disbelief and a loss of clear positioning. 70 The three major positioning errors: 1 Over positioning or giving buyers a too narrow picture of the company. 2 Confused positioning: leaving buyers with a confused image of a company. For example, Burger King has struggled for years to establish a profitable and consistent position. Since 1986 it has fielded eight separate advertising campaigns. These advertising campaigns have left consumers confused. 71 The three major positioning errors: 3 Under positioning or failing ever to position: Some companies discover that buyers have only a vague idea of the company or that they do not really know anything special about it. For example, many independent hotels trying to capture an international market are underpositioned. 72 Which Differences to Promote: Not all brand differences are meaningful, worthwhile or make a good differentiator. Companies must carefully select the ways in which it will distinguish itself from competitors. A difference is worth establishing to the extent that it satisfies the following criteria: • Important. The difference delivers a highly valued benefit to target buyers. • Distinctive. Competitors do not offer the difference, or the company can offer it in a more distinctive way. 73 Which Differences to Promote: • Superior. The difference is superior to other ways that customers might obtain the same benefit. • Communicable. The difference is communicable and visible to buyers. • Preemptive. Competitors cannot easily copy the difference. • Affordable. Buyers can afford to pay for the difference. • Profitable. The company can introduce the difference profitably 74 Communicating and Delivering the Chosen Position. • Once having chosen positioning characteristics and a positioning statement, a company must consistently communicate their position to targeted customers. All of a company's marketing mix efforts must support its positioning strategy. • For example, if a company decides to build service superiority, it must hire service-oriented employees, provide training programs, reward employees for providing good service, and develop sales and advertising messages to broadcast its service superiority. 75 Positioning Measurement: • Perceptual Mapping: Perceptual mapping, a research tool, is sometimes used to measure a brand’s position. • Furthermore, increased competition, or an ineffective positioning strategy can make repositioning necessary. • Perceptual maps can provide data supporting the need for repositioning. 76 Perceptual Map (revisited) Positioning map of service level versus price. 77 End of Chapter Slides.. 78